U.S. Markets Not as Strong as They Seem

Despite the fact that the S&P 500 and Dow Jones Industrial Average are trading near record highs and investors are enjoying a bull run that is now in its sixth year, the fact of the matter is that the stock market is not as strong as it appears.

Remember that the stock market is only as strong as the stocks that go into making up the exchange. Many economists believe the stock market rally has been fuelled almost exclusively by the Federal Reserve’s easy money policies, namely its bond buying program, and not by strong revenue and earnings growth.

For example, in 2013, the S&P 500 climbed almost 30%, but it did so against a backdrop of weak earnings. In each successive quarter of 2013, a larger percentage of companies revised their earnings guidance lower. During the first quarter of 2013, 78% of S&P 500 companies that provided pre-announcements issued negative earnings guidance; that number climbed to 81% in the second quarter, 83% in the third quarter, and a record high 88% in the fourth quarter.

Stock Prices Being Propped Up

How, then, have companies been able to report solid earnings growth? They’ve been able to prop up their earnings through financial engineering; that means cost cutting measures and aggressive stock repurchase programs.

For example, a company can make the same money this year as it did last year, but if it buys back 10% of its stock this year, last year’s earnings of $3.00 a share will become $3.30 a share this year.

And a lot of companies are issuing negative earnings guidance and buying back stock. For the first quarter of 2015, 80% of companies that have issued earnings guidance have announced a negative outlook. Back in September, the estimated earnings growth rate for the first quarter of 2015 was 9.9%; by the end of December, it had slipped to 4.2%, and it now stands at -1.6%.

According to the most recent data, S&P 500 companies spent $143.4 billion on share repurchases in the third quarter of 2014, which was a year-over-year increase of 16%. On a trailing 12- month basis, S&P 500 companies spent $567.2 billion on share repurchases, making for a year-over-year increase of 27%.

Poor economic numbers are starting to impact the S&P 500, where the average fourth-quarter revenue growth for S&P 500 companies was just 1.4%.

Why do companies have to massage their quarterly results? Because Americans are tapped out: personal debt levels remain high, wages are stagnant, and underemployment remains stubbornly high at above 11%. On top of that, 46.5 million Americans, or 15% of the population, receive food stamps, a 75% increase from before the financial crisis. For a country that gets 70% of its GDP from consumer spending, these are not encouraging numbers.

Global Economy Struggling

And it’s not just the U.S. that is struggling. The IMF said that weak trajectories in China, Russia, the eurozone, and Japan will hold world GDP growth to just 3.5% this year and 3.7% in 2016. China, the world’s second-biggest economy, is predicting the slowest growth rate in 23 years.

Russia is headed for a recession in 2015 at -0.3%, and then -0.1% in 2016. The eurozone, the world’s biggest trading region, is expected to grow just 1.2% this year and 1.4% next year, while Japan’s economy will grow just 0.6% in 2015 and 0.8% in 2016.

The global economy is also witness to a number of geopolitical tensions in Russia, Ukraine, and the Middle East. If the U.S., the world’s biggest economy, and the Eurozone, the world’s largest economic region, fall back into a recession, the North American markets could experience a very serious correction.

Make Consistent Profits No Matter What

It doesn’t matter if stocks are in the midst of a bull market or bear market or trading sideways; there are different investing strategies you can use to take advantage of market sentiment.

The licensed professionals at Learn-To-Trade.com Inc. can teach you effective investing strategies that can help you profit in any market condition. Some of those strategies include futures trading, stock options, FOREX, how you can rent out stock to create monthly cash flow, how to protect stock positions from losses, risk management, and capital preservation.

For information on Learn-To-Trade.com Inc.’s trading course or Lifetime Membership or to sign up for one of our free two-hour trading workshops, e-mail us at info@learn-to-trade.com or call 416-510-5560.

“Supplemental Nutrition Assistance Program Participation and Costs,” United States Department of Agriculture web site; https://www.fns.usda.gov/sites/default/files/pd/SNAPsummary.pdf, last accessed February 9, 2015.

George Karpouzis is the co-founder of Learn-to-Trade and has been personally providing education and mentoring to over 3000 members since 1999. George has been trading in the stocks, options, futures and forex markets using technical analysis since 1986. With the help of advancements in trading technology the Learn To Trade program is now accessible worldwide. His background and passion for teaching brings an invaluable asset to our members. George is constantly striving to improve the program content and develop new strategic relationships for the benefit of the members. Add me to your G+

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I wanted to let you know that I had taken your course in the fall of 2013. I took your advice and used demo accounts for the last quarter of 2013. I switched to real money trading account in the Near Year, when I finally felt comfortable. Following the lessons taught to me by you (don’t jump on a moving train, peaks and valleys, EMA..etc), I wanted to let you know that I have been successful beyond my own expectations. Thank you very much – taking the Learn-to-Trade course was, by far, the best decision I made in my business career.

Steven R

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2014-08-20T02:56:18-04:00

Steven R

I wanted to let you know that I had taken your course in the fall of 2013. I took your advice and used demo accounts for the last quarter of 2013. I switched to real money trading account in the Near Year, when I finally felt comfortable. Following the lessons taught to me by you (don’t jump on a moving train, peaks and valleys, EMA..etc), I wanted to let you know that I have been successful beyond my own expectations. Thank you very much – taking the Learn-to-Trade course was, by far, the best decision I made in my business career.

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The past options and forex tutorials taught by George were very helpful. I find these tutorials invaluable for a busy person like myself. I was able to keep myself up to date and on track ready to continue the learning process. Thanks for all the help and keep up the great work.

Joseph L

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2014-08-20T10:36:37-04:00

Joseph L

The past options and forex tutorials taught by George were very helpful. I find these tutorials invaluable for a busy person like myself. I was able to keep myself up to date and on track ready to continue the learning process. Thanks for all the help and keep up the great work.

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2014-08-20T10:37:39-04:00

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2014-08-20T10:41:40-04:00

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2014-08-20T10:42:24-04:00

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Learn to Trade provided me with strategy, self-confidence and discipline

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I took your course in 2008 and loved it. Since then I have been using what I learned at Learn-to-Trade to nicely supplement my pension income. Wanting a carefree type of trading, I have for the most part just sold options and made a monthly income which is a nice addition to my pension. I know I never would have made this kind of trading income without Learn-to-Trade. Thank you!

Shelley P

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2014-08-20T10:34:39-04:00

Shelley P

I took your course in 2008 and loved it. Since then I have been using what I learned at Learn-to-Trade to nicely supplement my pension income. Wanting a carefree type of trading, I have for the most part just sold options and made a monthly income which is a nice addition to my pension. I know I never would have made this kind of trading income without Learn-to-Trade. Thank you!

https://www.learn-to-trade.com/testimonials/shelley-p/

Amir

Hi George,

I just wanted to thank you again for the amazing work on the tutorials especially Options trading. Prior to joining, I had underestimated the quality of the trainings but they certainly far exceeded my expectations. Only I wish I’d found you 5-10 years ago!

Learn To Trade

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2016-10-07T08:56:52-04:00

Hi George, I just wanted to thank you again for the amazing work on the tutorials especially Options trading. Prior to joining, I had underestimated the quality of the trainings but they certainly far exceeded my expectations. Only I wish I’d found you 5-10 years ago!

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